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Section 203.-Laws Applicable to Outer Continental Shelf

Section (a) amends section 4(a)(1) of the OCS Act of 1953 by changing the term "fixed structures" to "and all installations and other devices permanently or temporarily attached to the seabed" and making other technical changes. It is thus made clear that Federal law is to be applicable to all activities on all devices in contact with the seabed for exploration, development, and production. The committee intends that Federal law is, therefore, to be applicable to activities on drilling ships, semi-submersible drilling rigs, and other watercraft, when they are connected to the seabed by drillstring, pipes, or other appurtences, on the OCS for exploration, development, or production purposes. Ships and vessels are specifically not covered when they are being used for the purpose of transporting OCS mineral resources.

Certain technical and conforming changes are made to subsections of section 4, including the deletion of the original subsection 4(b), relating to the jurisdiction of the U.S. district courts. Language similar to this subsection has now been included as part of the new section 23, which describes the procedures and jurisdiction related to court actions under this act.

Establishment of boundaries Section 4(a)(2) of the 1953 Act, as amended by section 19(f) of the Deepwater Port Act, Public Law 95-627, 88 Stat. 2146, provides that State laws of adjacent States are to be applicable to the OCS “to the extent that they are *** not inconsistent with this act or with other Federal laws and regulations of the Secretary now in effect or hereafter adopted," and that the State laws to be applied to OCS activities are to be those in effect at the time they are to be applied. The President, under the 1953 Act was to promptly determine and publish lines projecting seaward from the boundaries of States adjacent to the OCS so as to enable applicable State laws to be ascertained.

The committee, although concerned that such determinations have still not yet been completed, has left this section untouched.

However, the committee strongly believes that the President should promptly determine and publish such lines and establish procedures, if necessary, for the settling of any disputes relating to the projection of such lines, prior to such determination. These lines would not, of course, be true legal boundaries between States, but only the base for Federal application within Federal lands, for a determination of applicable State law.

The committee was also concerned about the settling of any international boundary disputes concerning the Outer Continental Shelf. Such "international boundaries,” refer only to the submerged lands of the OCS and do not affect any territorial claims to the superadjacent waters. At its hearings, the committee was informed by the Department of State that the United States and Mexico on November 24, 1976, entered into an agreement on provisional maritime boundaries out to 200 miles in the Gulf of Mexico and the Pacific Ocean. These provisional lateral boundaries will be applicable while technical problems are worked out and a formal treaty completed. No such preliminary agreement has yet been worked out in relation to the United

States-Canada boundary. The committee did not establish any requirement for the formal establishment of international boundaries, but expects procedures to be promptly established for the resolution of any international OCS boundary disputes.

Safety regulations as to foreign vessels Section 4(e) of the OCS Act has been amended by adding a new paragraph (3) to grant the Coast Guard authority over foreign vessels operating in the OCS. Specifically, any foreign vessel conducting any OCS or OCS-related activity, including the transportation of OČS resources from an OCS facility or structure, must agree to be subject to the same laws, regulations and rules as U.S. vessels, as to the operation, construction, design and equipment of such vessels, as to adequate training of the crews of such vessels, and as to the limitation on control of discharges from such vessels.

The new provision avoids any problems of international law by making application of such regulatory authority, a condition precedent of activity by a foreign vessel. Thus, the owner or operator of a foreign vessel wishing to undertake OCS or OCS-related activities must agree prior to undertaking such activities to be treated like a U.S. flag vessel. He is not forced to be so bound, unless he wishes to participate in United States off-shore activity. This provision does not, in any way, intend to cover foreign vessels not undertaking OCS or OCS-related activity or merely undertaking passage through the waters above the OCS. Similarly, this new provision avoids possible foreign policy conflicts by allowing such agreements as to regulatory requirements to be satisfied if the foreign vessel is in compliance with foreign state standards which are, as determined by the Coast Guard, "substantially” comparable to U.S. standards.

Finally, to handle exigent circumstances, an agreement with a foreign vessel can exempt such vessels from design or equipment requirements when it is used for a designated emergency call.

The Bureau of Customs has determined that artificial islands and structures, including rigs, are points within the United States and within the coastwise laws of the United States, even though located outside territorial waters.

Under that determination, the transportation of passengers and merchandise between islands, structures and rigs, or between islands, structures and rigs and the United States while engaged in OCS activities is covered by the Jones Act (46 U.S.C. 883). Thus, only U.S. owned, built and documented vessels can be used for such transportation.

This determination is under review and the committee, by this subsection, does not in any way negate or supersede existing law. This subsection only applies to allowable transportation by foreign vessels and does not apply to situations when such vessels are banned by the Jones Act, unless the Jones Act is waived under existing laws. Section 204.Outer Continental Shelf Exploration and Development

Administration This section amends section 5 of the Outer Continental Shelf Lands Act of 1953 by providing detailed requirements for the administration of leasing on the OCS.

Subsection (a) of section 5 is now to provide that leasing be administered by the Secretary of the Interior,45 who is to promulgate all necessary regulations to carry out his leasing responsibilities. These regulations are to be applicable to any lease in effect at the date of promulgation, as well as to any lease to be let in the future. Of course, the Secretary is not required to repromulgate regulations already consistent with the 1977 amendments. He may retain present appropriate and effective rules.

The original subsection (a) of section 5 of the OCS Act granted very broad authority, with few guidelines, to the Secretary to promulgate regulations. The amended subsection, while not limiting the generality of the power granted to the Secretary to promulgate any appropriate regulation, does provide statutory guidelines and requirements for certain types of regulations, and together with the requirements of other subsections provides a machinery for coordinated bureaucratic action.

Retroactivity of regulations Some concern was raised in the committee as to the retrospective application of new regulations. Of course, the present constitutional requirement that any retroactive rule be "reasonable” is applicable. Thus, any regulation must be in furtherance of the policies of the Act and new or amended regulations must be “necessary and proper in order to provide for the prevention of waste and conservation of the natural resources” of the OCS and for the "protection of correlative rights."

Specific concern was raised in the committee that unnecessary regulations that might delay expeditious exploitation of OCS resources might be promulgated. To insure against such a result, the committee provided that any regulation: (1) That imposed additional requirements on lessees; (2) who held a lease prior to the date that a new regulation is proposed; and that (3) resulted in undue delays— must be justified. Specifically, the Secretary must make a specific finding, with appropriate notice to all interested parties, that: (1) Additional requirements are being established; (2) that these requirements could result in undue delays; and (3) that nonetheless, he feels it necessary to adopt this regulation to prevent serious harm or damage. As with any other administrative action, such a finding and its concurrent regulatory action is not to be set aside unless “arbitrary, capricious, an abuse of discretion," or otherwise not in accordance with law (5 U.S.C. 706 (2) (A)).

Coordination with other agencies and States At the request of the committee, the Office of Technology Assessment prepared a study of the present OCS regulatory framework.16 This study confirmed the committee's belief, supported by the testimony of numerous witnesses, that there presently exists a lack of coordination between Federal agencies and the need for a centralized information source. Section 5 (a) requires, therefore, the Secretary to

45 Of course, the committee is aware of the possibility that some of leasing procedures will be administered in coordination with a new Secretary of Energy. See analysis discussion as to section 308.

46 Office of Technology Assessment, “Staff Report on the Federal Rule in OCS Oil and Development, with Addendum, Agency by Agency Analysis (May 1977).

cooperate with the relevant agencies of the Federal Government in enforcing regulations. Section 5(g) requires coordination of agency activity to facilitate "one-stop" shopping. The Secretary of Interior is to act as a "clearinghouse" for permit, license, lease, and other applications, hearings, and approvals involved in OCS activities. Industry, States, and citizens should be able to approach one source for regulatory information. This provision would mandate the Secretary to perform such coordination and, of course, be subject to oversight criticism if he fails to do so. He is to establish procedures to avoid inconsistent or duplicative requirements. He is to receive prompt notice from other agencies as to actions that affect the OCS and recommend changes as appropriate. Finally, if environmental impact statements are required for steps in the OCS process, the Secretary would be the lead agency and under this proposed section, mandated to attempt to provide for a single environmental impact statement process, possibly involving a series of permits or licenses for different agencies—but as to the same activity.

In order to insure adequate consideration of competition issues, the 1977 amendments require the Secretary of the Interior to ask for and consider the views of the Attorney General and the Federal Trade Commission as to any matter which may affect competition. Thus, for example, in utilizing various bidding systems and applying those systems, under amended section 8 of the OCS Act, he must inform the Attorney General of his regulatory procedures, including scheduled lease sales and joint bidding bans. Of course, as specifically provided in section 8(e), any statement by the Attorney General or the Federal Trade Commission is advisory only. It does not bind them in any future possible litigation or failure to litigate.

Finally, to insure adequate state input at all stages in the OCS regulatory and leasing process, the Secretary of the Interior is also to coordinate his regulatory promulgation and enforcement with any relevant agencies of affected States and, under subsection (g), notify such States of OCS-related actions by other Federal agencies. There is, of course, no intent to require the Federal Government to enforce compliance by permittees and lesees with State laws or regulations as to activities on the Outer Continental Shelf, except for those required by the "consistency” provisions of the Coastal Zone Management Act.

Suspension provisions The Secretary is to provide regulations for the suspension or temporary prohibition of operations or activities pursuant to a lease or permit in particular circumstances. Suspension can occur, if requested by the lessee and approved by the Secretary, to insure proper development, to allow for adequate transportation of resources or more generally, to further the national interest. The intention of this paragraph is to provide that suspension and a concurrent extension of the 5-year lease term may be granted, upon request of the lessee or permittee, so as to allow, for example, unitized exploration or development, common pipeline placement, or proper and safe delivery by tankers.

Suspension is also permitted without any request by, and even over the objection of the lessee, if there is a threat of serious, irreparable or immediate harm or damage as a result of any operation or activity.

Section 23(b) provides that the lessee can seek review of any such suspension through a proceeding in the U.S. district court.

As the reason for the suspension is usually through no fault of the lessee, any permit or lease affected by a suspension or temporary prohibition is to be extended for the period of such suspension or prohibition. If, however, a suspension or prohibition is a result of gross negligence or willful violation of the terms of a lease or permit or of applicable regulations, no such extension shall be permitted.

Cancellation provisions The Secretary is also required to develop regulations for the cancellation of any lease or permit when continued activity would probably cause serious and unjustifiable harm or damage and such harm or damage would not decrease to an acceptable extent over a reasonable period of time. The Secretary's decision to cancel is thus based on a twofold consideration, balancing of risks, and time. First, the criteria for cancellation is a showing of harm or damage which outweighs the advantages of continued activity. Second, it was the intention of the committee that the Secretary would first suspend or temporarily prohibit activities when there is a potential of serious harm. Such suspension would be for a period of 5 years, either at one time or through a series of suspensions, or for a shorter period when requested by the lessee and approved by the Secretary. .

Cancellation under subsection (a) are in the nature to environmental cancellations, without any fault by the lessee or permittee. Subsections (c) and (d) of this section provide the procedures for cancellations or termination because of improper activities or noncompliance by a lessee or permittee. An environmental cancellation of a lease or permit can only occur after a hearing, and the determination by the Secretary after that hearing would be subject to review in an appropriate district court as provided in section 23(b).

The committee wishes also to insure that adequate compensation would be granted to a lessee or permittee when cancellation occurs through no fault of the lessee or permittee. A cancellation for failure to comply with the Act, lease terms, or applicable regulations, under the procedures of subsections (c) and (d) of this section, would ordinarily preclude compensation to a lease holder. Cancellation for environmental reasons would be compensated but differently for leases issued before or after enactment of the 1977 amendments.

For cancellation of a lease issued prior to enactment of the 1977 amendments, the lessee would be entitled to the fair market value of the lease interests, at the date of cancellation. This fair value would be the revenues expected from development and production, if the cancellation had not occured, minus the costs anticipated from such production to obtain those revenues. For cancellation of a lease issued after enactment of the 1977 amendments, a two fold standard is established. The lessee would be entitled to the value of the rights or restitution of the excess of costs over revenues, whichever is less. The committee believed that such a division as to compensation for old and new leases was appropriate. Pre-existing lease holders acquired their interests without the legal possibility of cancellations.47 Thus,

47 See Gulf Oil Corporation v. Morton, 493 F. 2d 191 (9th Cir. 1973); Union Oil Company V. Morton, 512 F. 2d 493 (9th Cir. 1975).

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